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Profit efficiency sources and differences among small and large U.S. commercial banks

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  • Aigbe Akhigbe
  • James McNulty

Abstract

Profit efficiency is an econometric financial performance measure of how well actual profitability compares to a best-practice frontier. We compare the profit efficiency of small (under $100 million in total assets), medium, and large (over $1 billion) commercial banks for the period 1995 to 2001 and examine the sources of profit efficiency for each. We also consider whether banks of different sizes attain their profit efficiency in different ways. We find that small and large banks have quite different ways of attaining high profits. Copyright Springer 2005

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  • Aigbe Akhigbe & James McNulty, 2005. "Profit efficiency sources and differences among small and large U.S. commercial banks," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 29(3), pages 289-299, September.
    • Handle: RePEc:spr:jecfin:v:29:y:2005:i:3:p:289-299
    DOI: 10.1007/BF02761575
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    Cited by:

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    2. Feng, Guohua & Serletis, Apostolos, 2010. "Efficiency, technical change, and returns to scale in large US banks: Panel data evidence from an output distance function satisfying theoretical regularity," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 127-138, January.
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    4. Kamaruddin, Badrul Hisham & Safa, Mohammad Samaun & Mohd, Rohani, 2008. "Assessing production efficiency of Islamic banks and conventional bank Islamic windows in Malaysia," MPRA Paper 10670, University Library of Munich, Germany, revised 10 May 2008.
    5. Sufian, Fadzlan & Abdul Majid, Muhamed Zulkhibri, 2007. "Bank Ownership, Characteristics and Performance: A Comparative Analysis of Domestic and Foreign Islamic Banks in Malaysia," MPRA Paper 12131, University Library of Munich, Germany, revised 01 Jun 2007.
    6. Bruno R. Arthur & Monika K. Rabarison, 2018. "Deposit-lending synergies and bank profitability," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(4), pages 710-726, October.
    7. Sufian, Fadzlan, 2011. "Banks total factor productivity change in a developing economy: Does ownership and origins matter?," Journal of Asian Economics, Elsevier, vol. 22(1), pages 84-98, February.
    8. Md Aslam Mia & Lucia Dalla Pellegrina & Wai‐Yan Wong, 2022. "Female participation and financial performance of microfinance institutions: Evidence from transition economies," Development Policy Review, Overseas Development Institute, vol. 40(5), September.
    9. José Luis Carreño G. & Gino Loyola F. & Yolanda Portilla S., 2010. "Banking Efficiency in Chile: a Profit Frontier Approach," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 13(3), pages 33-65, December.
    10. Wijesiri, Mahinda & Viganò, Laura & Meoli, Michele, 2015. "Efficiency of microfinance institutions in Sri Lanka: a two-stage double bootstrap DEA approach," Economic Modelling, Elsevier, vol. 47(C), pages 74-83.
    11. Md. Asif Nawaz, 2021. "Impact of Specialization, Ownership Structure, and Size on Cost and Profit Efficiency of US Commercial and Savings Banks," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 11(3), pages 1-4.
    12. Srinivas Nippani & Kenneth M. Washer & N.R. Vasudeva Murthy, 2013. "Size and Day-of-the-Week Effect in the Banking Industry: A Comparative Analysis Based on Economic Conditions," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 4(3), pages 1-9, July.
    13. Pilar B. Álvarez-Franco & Diego A. Restrepo-Tobón, 2016. "Managerial efficiency and failure of U.S. commercial banks during the 2007-2009 financial crisis: was this time different?," Revista Ecos de Economía, Universidad EAFIT, vol. 20(43), pages 4-22, December.
    14. Kathy Estes, 2014. "Diversification and Community Bank Performanceduringa Financial Crisis," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 3(4), pages 01-40, October.
    15. Karbhari, Yusuf & Muye, Ibrahim & Hassan, Ahmad Fahmi S. & Elnahass, Marwa, 2018. "Governance mechanisms and efficiency: Evidence from an alternative insurance (Takaful) market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 56(C), pages 71-92.
    16. Fadzlan Sufian & Muzafar Shah Habibullah, 2010. "Financial Disruptions and the Evolution of Malaysian Banking Sector’s Efficiency: A Non-Stochastic Frontier Approach," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 166-186.
    17. Johann Burgstaller & Teodoro Cocca, 2011. "Efficiency in private banking: evidence from Switzerland and Liechtenstein," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 25(1), pages 75-93, March.
    18. Michael Adusei, 2016. "Determinants of bank technical efficiency: Evidence from rural and community banks in Ghana," Cogent Business & Management, Taylor & Francis Journals, vol. 3(1), pages 1199519-119, December.
    19. José Luis Carreño & Gino Loyola & Yolanda Portilla, 2010. "Eficiencia Bancaria en Chile: un Enfoque de Frontera de Beneficios," Working Papers Central Bank of Chile 603, Central Bank of Chile.
    20. Fadzlan Sufian & Muhd-Zulkhibri Abdul Majid, 2008. "Bank Ownership, Characteristics, and Performance:A Comparative Analysis of Domestic and Foreign Islamic Banks in Malaysia ملكية المصرف، الخصائص والأداء:تحليل مقارن لمصارف إسلامية محلية وأجنبية بماليزي," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 21(2), pages 3-36, July.
    21. Sufian, Fadzlan, 2009. "Determinants of bank efficiency during unstable macroeconomic environment: Empirical evidence from Malaysia," Research in International Business and Finance, Elsevier, vol. 23(1), pages 54-77, January.
    22. Mia, Md Aslam & Ben Soltane, Bassem Ibrahim, 2016. "Productivity and its determinants in microfinance institutions (MFIs): Evidence from South Asian countries," Economic Analysis and Policy, Elsevier, vol. 51(C), pages 32-45.
    23. Cristina Bernini & Paola Brighi, 2011. "Relationship Lending, Distance and Efficiency in a Heterogeneous Banking System," Working Paper series 41_11, Rimini Centre for Economic Analysis.

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